Wall Street CEOs on Wednesday opposed proposed regulations aimed at increasing the level of capital they need to hold to protect against future risks.
At the Senate's annual regulatory hearing, the CEOs of the eight banks responded to lawmakers' questions in prepared speeches in an attempt to warn of the impact of these changes. In July of this year, US regulators announced a comprehensive set of higher banking supervision standards, known as Basel 3.
“This regulation will have foreseeable harmful consequences for the economy, markets, businesses of all sizes, and American households,” J.P. Morgan CEO Jamie Dimon told lawmakers.
Dimon claims that if these regulations remain unchanged, capital requirements for large banks will increase by about 25%.
Major US banks, including J.P. Morgan, Bank of America, and Goldman Sachs, are all seeking to mitigate the impact of the new regulations. The new regulations will affect all US banks with assets of 100 billion US dollars or more, and will not be fully implemented until 2028. Raising capital costs could hurt the industry's profitability and growth prospects.
As a result of stricter regulation, these banks have gained market share in a number of areas, including providing loans to mergers, acquisitions, and highly indebted businesses.
Dimon and other executives said those who may have inadvertently been harmed by these rules include small business owners, mortgage customers, pensioners and other investors, as well as rural and low-income customers.
“Mortgages and small business loans will become more expensive and harder to obtain, especially for low- and middle-income borrowers,” Dimon said. “As the costs of asset managers, money market funds, and pension funds rise, the return on saving for retirement or college will decrease.”
Dimon added that as the cost of capital rises, the cost of financing government infrastructure projects will be higher, and the cost of building new hospitals, bridges, and roads will even be higher. He said corporate customers will need to pay more to hedge commodity prices, leading to higher consumer costs.
Citigroup said these changes will “increase borrowing costs for farmers in rural areas.”
CEO Jane Fraser said. “It could affect their mortgages and it could affect their credit cards. It could also have a significant impact on their borrowing costs.”
Finally, CEOs warned that by strengthening regulation of banks, regulators would push more financial activity to non-bank participants (shadow banking), making regulators blind to these risks.
During the three-hour hearing, lawmakers' questions generally adhered to the partisan line. Democrats were more skeptical of executives, while Republicans were inquiring about potential harm to ordinary Americans.
At the opening of the conference, Ohio Democratic Senator Sherrod Brown lashed out at the bank's lobbying campaign against Basel 3.
“You would say cracking down on Wall Street would hurt working families. Would you really say that?” Brown said. “The 2008 economic disaster hurt working families, and the uncertainty and turmoil brought about by the collapse of Silicon Valley banks hurt working families.”